The advent of an interactive, computerized means of communication accessible to the public via the internet has made possible a wide variety of innovative business models and practices. In recent years, entire new sectors of the domestic and international economies have appeared, involving new modes of market commerce, in particular. As a result, many entrepreneurs have begun to envision a “virtual” marketplace, having capability for conducting a vast spectrum of ordinary business transactions with greatly improved efficiency and flexibility.
Securities web sites are popular internet services that allow users to manage investment information. Financial institutions, including brokerages, which make up and/or provide access to various financial instruments, have implemented on-line services that allow investors to engage in trading over data communication networks, including the Internet. For purposes of this invention, financial instrument are securities, stocks, bonds, currencies, options, futures, commodities and derivatives thereof. As used herein, the terms trade and/or trading generally refers to transactions such as buying and/or selling. Any investor having access to the Internet may more directly engage in trading activity without having to speak to a broker to enter their orders in the marketplace for execution. Having to speak to a broker in order to place a trade can prevent the investor from making that trade in a timely fashion and thereby change the nature and degree of the risk involved in the trade. For investors who believe they have sufficient information in order to appreciate the risk involved in the trade, any added steps that delay the placement of the trade are undesired inefficiencies.
In addition to the many advantages that may be realized in standard accounting procedures, brokerage firms dealing in financial instruments have sought to expand their capabilities for improved interactive computerized communication with their individual retail account investors. Previously, prior to the appearance of the internet, trading orders from such retail investor clients could be communicated only in person or via telephone, whether using voice or fax transmission. Processing such trade orders typically would require a certain amount of lag time before execution, minimally from perhaps a few minutes to as much as several hours or more. More recently, with online communication capabilities becoming widely available, there has now opened a possibility for individual investors of financial brokerage firms to have such orders entered and executed more rapidly, often requiring less than one minute of lag time between the investor entering the order and having receipt of an online trade confirmation in reply, communicated electronically within a very few moments.
In addition, and in further contradistinction to the fairly limited range of standard and traditional types of trading modalities that were previously available to their retail clients, brokerage firms have begun to devise expanded modes of interactive communication where such orders can be made more flexible, so as to provide a greater range of possible trading formulations, allowing individuals to manage their trading accounts with their brokerage to define more innovative types of trading orders, such as to include certain conditional or contingent prerequisites that may be advantageous, in a manner that has not been technically feasible.
As an example, retail brokerage firms have traditionally allowed individual investors to specify certain trading orders with buy or sell limits, prescribing that a trade not be executed unless a certain price level for the transaction might become available in the market exchange within a certain limited time frame, usually designated as within one trading day. In a similar manner, such investor trading orders might ordinarily be further conditioned as buy stop, or sell stop orders. Whereas a buy limit order requires that a purchase not be affected above a certain price, a buy stop order requires buying only at a maximal price level. In the case of sell orders, whereas a sell limit order requires that a sale of financial instrument not be affected below a certain price, a sell stop order requires that the sell order be entered only after accession of a certain price.
Most brokerage firms would also allow investor orders to request orders where the two conditional contingencies, the limit criterion and the stop-price criterion, are combined. An individual investor might thereby instruct the brokerage firm to either buy or sell at a specified price or better after the market price has advanced or declined beyond a given stop price.
Brokerage firms establishing an interactive or online computerized trading capability as part of their financial services offered to the public might additionally allow their retail investors to specify another type of conditional trading order, involving the designation of a buy or sell stop price level that can be made variable, in accordance with the fluctuations of the market. Such initially non-activated or conditional orders, usually designated as “trailing stop” orders, are defined as buy or sell orders imposing two additional contingencies, involving the market price at the time when the order was entered, and a specified trailing range, or price differential between the current market price and the trigger or activation price. Market price fluctuation beyond such range then causes such orders to become immediately activated, as market orders to buy or sell.
For practical reasons, and because individual traders would usually request a trailing stop order only as part of a protective or defensive strategy, such trailing stops typically would not be combined with any additional criteria involving buy or sell stops, but rather become designated as orders to be executed at the current market price, whenever the trading market price goes beyond, either above or below, the price differential specified by the range of the trailing stop. Thus, the trigger or activation price level for a trailing sell stop can move higher as the market price increases, but it cannot be moved lower from the point of the highest ongoing market price less the trailing differential. Similarly, a designated trigger price for a trailing buy stop can only move lower as the market price decreases, but cannot be adjusted to move any higher than the ongoing current market price minus plus the trailing differential.
As a matter of standardizing procedures, a brokerage firm may impose additional restrictions whereby such contingent orders might be held static so as not to become activated for execution at the current market price for some briefly limited period of time subsequent to activation of the trigger point, perhaps a period of one minute or less. Another restriction imposed by brokerage firms might require that such contingent orders only be specified or entered by investors at certain pre-determined incremental price levels, defined usually either in dollar amounts or fractions thereof, or as a price range limited within an incremental or fractional percentage of the current market price, for any given traded issue or security.
Brokerage firms establishing an interactive or online computerized trading capability as part of their financial services offered to the public might additionally offer their retail investors recommendations, or suggestion services. Two types of recommendation services are conducted through what is known as content-based filtering and collaborative filtering.
Content-based filtering services attempt to identify items similar to items that are of interest to the user by assessing the item content. Typically, content-based filtering services do not provide a mechanism for evaluating the quality or popularity of an item. Collaborative filtering services attempt to identify items to users based on the interests of a community of users. Typically, collaborative filtering services are based on profiles of individual users—similar profiles are used to generate recommendations.
As the extended capabilities of online communication becomes more commonly available, more elaborate trading strategies and more innovative forms of interactive trading becomes possible.
As more elaborate trading strategies and more innovative forms of interactive trading becomes possible, investors have greater and greater need to identify the risk involved in the potential purchase of any security and, after purchasing the security, efficiently manage the risk inherent in any financial portfolio. The present invention satisfies the demand.